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solzberg in Gainers & Losers,

Strong earnings will send Amazon stock higher

The world largest internet retailer Amazon.com posted a very strong financial report for the third quarter of 2015. Revenues increased 23.2% y-o-y to $25.36 bn topping consensus estimate of $24.85 bn. Excluding the $1.3 bn unfavorable FX impact, revenues would have been up 30% y-o-y. The North America segment accounted for around 59.2% of sales, representing y-o-y growth of 28.3% on robust Prime Day sales and demand for electronics and general merchandise. In July, Amazon said customers had ordered 34.4 mn items worldwide during the one-day sale for members of its $99 per year Prime subscription service.

Net sales from Amazon Web Services (AWS), which has more than 1 mn active customers across 190 countries, rose more than 78% in the quarter to $2.09 bn. Cloud computing is the fastest growing business for Amazon, and the new services in which it is investing, such as Internet of Things, will help the company capitalize on rising demand to store and manage large amounts of information.

Operating income was $406 mn in the third quarter, compared with operating loss of $544 mn in the year-ago quarter. Net income came in at $79 mn, and adjusted EPS was $0.17 per share, beating analysts’ average projection of minus $0.10. Operating cash flow surged 72% to $9.8 bn for the trailing twelve months ended September 30, 2015. Free cash flow increased to $5.4 bn, compared with $1.1 bn for the trailing twelve months ended September 30, 2014.

According to EMarketer, total e-commerce sales in the US are expected to hit $79.4 bn in November and December, up 14% from a year earlier, showing that spending continues to shift online from brick-and-mortar retailers. And Amazon, I believe, is well positioned to remain the major beneficiary of this trend. The company forecast net sales growth of 14-25%, to a range of $33.50-36.75 bn, for the holiday shopping quarter.

Amazon’s shares, in my opinion, look nice for medium-term investment. The nearest aim is $600.